OK, OK. Long story short: I’m a dumbass. I know many of you know this already, but know I have a new reason to earn that title. I just got a letter from the IRS today. No, those usually aren’t good. This one wasn’t an exception.
In 2001 I did not report a small amount of income ($1400) for some contracting work that I did outside of my full time job. Now, the IRS just notified me of this, and says that I owe them x amount of tax for that $1400 income, and a smaller amount in interest and late penalties. I cannot and will not dispute these figures, as I just f-ed up. I owe them this money. I’m fine with that.
However, in addition to this total, they are charging me with a $200 “Self Employed Tax”. This is a crock! I did a small amount of contracting as moonlighting on my full time job, and the amount of income I got from that vs my fulltime job is miniscule! Without giving away my exact salary, we can safely say that the amount I earned from this contract was between 1% and 4% of my gross income from my full time job.
Do I really have to pay this “Self Employed Tax” ?
I’m going to google now, but any CPA or other in-the-know thoughts are appreciated.
Yes. According to the instructions for form 1040-SS, anyone who had income from self-employment must pay the self-employment tax. Oddly, only people who are residents of American possessions like Guam, Puerto Rico, and the Virgin Islands need to file 1040-SS. After reviewing form 1040-SS, all I can say is “Pay the $200 and thank your lucky stars you do not have to file form 1040-SS.”
As far as I can tell, it’s an additional tax to assure that you’re making your full contribution to Social Security.
Yes. According to the instructions for form 1040-SS, anyone who had income from self-employment must pay the self-employment tax. Oddly, only people who are residents of American possessions like Guam, Puerto Rico, and the Virgin Islands need to file 1040-SS. After reviewing form 1040-SS, all I can say is “Pay the $200 and thank your lucky stars you do not have to file form 1040-SS.”
As far as I can tell, it’s an additional tax to assure that you’re making your full contribution to Social Security.
I got snagged by this, too. Just pay up. The SE tax is basically
Social Security tax which you did not pay because you weren’t employed by a reg’lar employer, who would have automatically withheld it and sent it, and the employer’s additional share, off to the Feds. The nasty part is that, alas, you need to pay both your share (about 7%), which you’re used to, and also the employer’s share (another 7%), which is usually invisible to you, although an economist would point out you’re paying it anyway in terms of lower wages blah blah.
You need to fill out a schedule SE to pay the SE tax, and attach to your schedule C, which you are going to attach to a 1040X (amended return) for the year in question. You’re going to do that because you can deduce half the SE tax from your income on line 29 of the 1040, hence your AGI is going to be (slightly) lower, also, and your non-SE tax bill slightly lower. Not enough to compensate for the SE tax, o’ course, but you want to keep what you can. . .
CAVEAT: This would be personal reflection, not tax advice, since, not being a tax lawyer, I am utterly unqualified to give the latter, and hereby assert I have not.
I’ve been filling out 1040-ES for quite a while. There is even an EZ form of it.
It’s the only Social Security I pay since I work for a municipal government and am exempt from paying into Social Security, but the $1000 or so I make doing freelance writing is subject to Social Security taxes.
If you work for a church, you get a break on it I believe.
What cgrayce said is correct. I’ll just point out that when you fill out your Schedule C (net profit/loss of business, of which independent contractors, like you, are sole proprietors), you’ll be able to take deductions. If you did have valid, deductible business expenses for that $1,400 job, you can declare them and reduce that taxable amount.
And as cgrayce posted, you’re paying your share of SS and the employer’s share (which is you), for a total of 15% of adjusted Self Employment income (200 is roughly 15% of 1,400).
Certain ministers can opt out of Social Security. In the Catholic Church, it’s usually those who have take a vow of poverty (a religious sister, brother, monk, nun in a vowed order). In the Protestant churches, it’s usually right-wingers who believe SS is communistic. However, this means that they do not get SS checks upon retirement – they’re on their own.
But your average parish priest or minister is a dual-status taxpayer. They (are supposed to) figure out their Federal Income Tax as if they were mere employees of their churches; and then figure out their Social Security as if they were self-employed (paying the full 15% of the SS SE tax). Their paychecks have Federal Income Tax withheld, but, by law, their SS may not be withheld. Because of that, they sometimes get an additional SS tax allowance from the church.
[Now some might be saying, “hey, aren’t churches given a tax break?” So, let me point out ahead of time that it is the church institution classified by the State as a charitable and/or religious non-profit organization that is exempted from state sales tax for items bought for the church and from real estate tax for property in use by the church and from tax on its income, i.e., the money it raises.
The church as an employee, however, still pays the employer’s part of income tax and SS for lay employees.
All ministers pay income tax and most pay into SS. All ministers pay state sales tax for private purchases and any real estate they own personally.]
Peace.
You can always tell the IRS, “here, you figure it out and just bill me.” Waitasec, that’s what the did!
You can also avoid the social security tax if your income is under $400. Since a self-employed person can deduct any expenses related to employment, you can cut down the amount you owe quite considerably.
In other words, if you had any expenses as part of that contracting work, they can be used to reduce your tax.
Self-employment income is the same as any other income – it’s subject to social security withholding. The bad side is that you need to to pay both the employee and the employer contribution. IIRC, there used to be a way to get a credit for the self-employment tax that would reduce the payment, but I don’t see it on the form and I haven’t had to pay it in several years.
Combine your net profit or loss from farm income(Schedule F or K-1) and Schedule C,C-EZ,K-1(Form 1065) and K-1.
Take 92.35%(Stop if less than $400). Otherwise mulitiple by 15.3% if $84,900 or less. If more than $84,900, mulitply by 2.9% and add $10,527.60. That’s your self employment tax.
Now take half of that and enter on line 29 of your 1040 as a reduction in taxable income.
Unless, you are a church employee with income of $108.28 or more, or a minister, member of a relgious order, or Chrisitian Science practitioner and you filed Form 4361 and received IRS approval not to be taxed on these earnings–in which case you do something else.
I did get my dad out of this based on the following circumstances:
My dad is a retired electrician. His church asked for his assistance with a new building addition. My dad was willing to provide the assistance for free. However, the church gave him a couple of thousand dollars after the job was completed.
I successfully argued with the IRS that he was not in a “business.” He did not hold himself out as a contractor, there was no invoicing or contract order, there were no other customers, and income was not expected for the work provided. The income was more appropriately classified as miscellaneous, such as a reward, and self-employment tax did not apply.
I guess you have to look at whether you were actively engaged in this “small amount” of contracting activity for gain, or was it more of a miscellaneous income activity that would rarely be repeated. It is quite difficult to convince the IRS of the latter, but sometimes they’ll accept it based on the circumstances.
I’m confused. I’m self employed and pay the full SS tax. If you are an employee you are “seeing” the half removed from your check but your other half is “hidden”. You are still paying it. Kinda like a value added tax. What you don’t see won’t disturb you.
Yeah, you owe it. But you MUST have had expenses- tools, milage, phone, etc. And those are deductable- even if you don’t have any reciepts now- you can do a “reconstruction” (this only works for Ordinary & Nessesary expense, and not entertainment & gifts).
So, to reply to them, go down to the IRS, or go online. get a Scd C or Scd CEZ. Fill it out, then return it to them with their notice, and say you are "protesting the increase’, They’ll turn your case over to someone who will likely- as long as you didn’t get carried away with the expenses- just accept them, and you’ll owe less.
Come up with, say $400>500, of expenses and your tax bill will be about a third less.
Just be glad that $200 is all you have to pay … my (non-financial whiz of a)husband and I were both self-employed last year. Our SE tax is $7000. We have to pay $3267 this year because my husband didn’t know about the SE tax. (AND we may get burned, 'cause in 2001 he was self-employed for three months. :eek: )
Actually, if you are an employee, you pay half of the SS tax and your employer pays the other half. When you are self-employed, you are both employee and employer, and you pay the full amount.
mouthbreather
Did you get a 1099 or other form that listed this income? That type of form usually has instructions on how to report the amounts and also says that the IRS has been notified.
By the way, you get to deduct half of the self-employment tax from your gross income (supposedly the half that represents the portion paid by you as the employer). Add it to line 29 of the 1040 long form.